We propose a new framework to explain the factor structure in the full cross section of Treasury bond returns. Our method unifies non-parametric curve estimation with cross-sectional factor modeling. We identify smoothness as a fundamental principle of the term structure of returns. Our approach implies investable factors, which correspond to the optimal spanning basis functions in decreasing order of smoothness. Our factors explain the slope and curvature shapes frequently encountered in PCA. In a comprehensive empirical study, we show that the first four factors explain the time-series variation and risk premia of the term structure of excess returns. Cash flows are covariances as the exposure of bonds to factors is fully explained by cash flow information. We identify a state-dependent complexity premium. The fourth factor, which captures complex shapes of the term structure premium, substantially reduces pricing errors and pays off during recessions.
","image_description":"","creation_date":"2025-11-17T09:10:43","last_modification_date":"2026-05-26T14:13:19","link_label":"Paper","link_url":"https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4182649&__cf_chl_tk=b2QwUF.CR6Lj6LKCsLom5zk0hQd0MSB4d9Y4er98Z50-1779797567-1.0.1.1-B5FyZD4_Von28NuliFwf5hGrTNxeVfSQDG5DeNn2XbQ","canceled":"False","cancel_reason":"","place_and_room":"UNIL, Extranef, room 126","url_place_and_room":"","url_online_room":"","spoken_languages":["https://memento.epfl.ch/api/v1/spoken_languages/2/?format=json"],"speaker":"Markus Pelger - Stanford University","organizer":"","contact":"sophie.cadenakauz@epfl.ch","is_internal":"False","theme":"","vulgarization":{"id":2,"fr_label":"Public averti","en_label":"Informed public"},"registration":{"id":3,"fr_label":"Entrée libre","en_label":"Free"},"keywords":"","file":null,"icalendar_url":"https://memento.epfl.ch/event/export/118651/","category":{"id":1,"code":"CONF","fr_label":"Conférences - Séminaires","en_label":"Conferences - Seminars","activated":true},"academic_calendar_category":null,"domains":[],"mementos":["https://memento.epfl.ch/api/v1/mementos/3/?format=json","https://memento.epfl.ch/api/v1/mementos/105/?format=json","https://memento.epfl.ch/api/v1/mementos/112/?format=json","https://memento.epfl.ch/api/v1/mementos/116/?format=json"]},{"id":72073,"title":"Showcase, E4S Impact Innovation Summit","slug":"showcase-e4s-impact-innovation-summit","event_url":"https://memento.epfl.ch/event/showcase-e4s-impact-innovation-summit","visual_url":"https://memento.epfl.ch/image/33365/200x112.jpg","visual_large_url":"https://memento.epfl.ch/image/33365/720x405.jpg","visual_maxsize_url":"https://memento.epfl.ch/image/33365/max-size.jpg","lang":"en","start_date":"2026-09-17","end_date":"2026-09-17","start_time":"09:00:00","end_time":"19:00:00","description":"Showcase is Lausanne’s impact innovation summit bringing together actors from academia, business and the public sector to rethink and shape the economy of tomorrow.
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\r\nProgram:
\r\nDuring the whole day, the public can visit an exhibition of 18+ solutions to restore, monitor and protect nature
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\r\n08:30 Coffee & Croissants
\r\n09:00 Welcome and Keynote by Julia Binder (Professor of Business Transformation, IMD)
\r\n09:30 Thematic Workshops and Impact Innovation Award by FIT (Fondation pour l'Innovation et la Technologie)
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\r\n12:00 Lunch Break
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\r\n13:15 Keynote speeches, fireside chats and debates starring Cyril Dion (Author and Movie Director), Christophe Champod (Rector, UNIL), and many more
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\r\n15:00 Break
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\r\n15:30 Keynote speeches, fireside chats and debates starring Emmanuel Faber (Chair, International Sustainability Standards and former CEO of Danone), Camille Etienne (author, activist and director of the NGO Avant l'Orage), and many more
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\r\n17:00 Closing ceremony
\r\n
\r\n17:30 Cocktail reception
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